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BROWNING-FERRIS INDUS. OF ILLINOIS v. RICHARD TER

July 29, 1998

BROWNING-FERRIS INDUSTRIES OF ILLINOIS, INC., et al., Plaintiffs,
v.
RICHARD TER MAAT, et al., Defendants.



The opinion of the court was delivered by: REINHARD

MEMORANDUM OPINION AND ORDER

 INTRODUCTION

 Plaintiffs filed this action for contribution and declaratory relief pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as amended, 42 U.S.C. §§ 9607 and 9613 and under the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, seeking monetary damages against defendants for the past and future costs incurred to respond to environmental contamination at the MIG/DeWane Landfill Superfund Site located in Boone County, Illinois. The Court conducted a two-week bench trial in January 1998 and set a briefing schedule for the parties to submit post-trial briefs setting forth the issues and citing the trial evidence relevant thereto. *fn1" This order will decide the legal issues, make the necessary factual findings, allocate liability among the parties and assess damages against defendants where appropriate.

 BACKGROUND

 The site (also termed a facility as defined in CERCLA) at issue is an approximately forty-seven acre landfill located near Belvidere in Boone County, Illinois. The property during the entire relevant time period was owned by Raymond DeWane, Jean A. Farina and L.A.E., Inc. who leased it for operation of a landfill. It was operated as a landfill from February 1969 to June 1988. During that time, a variety of residential, commercial and industrial waste was placed in the landfill.

 The landfill initially consisted of an excavated area which was lined with five feet of clay as required by the state landfill permit. About 45,000 cubic yards of waste were placed in the excavation between February 1969 and March 1971. The operator of the landfill during that time left it in poor condition and there was suspected contamination of the groundwater by leachate. *fn2"

 In early 1971, the owners leased the landfill to Browning-Ferris Industries of Illinois, Inc. (BFI). *fn3" BFI sought and obtained a new landfill permit from the Illinois Environmental Protection Agency (IEPA) in May 1972 to operate the site. The landfill began receiving waste in April 1973, although on a limited basis. In September 1973, when a nearby landfill closed, the landfill began receiving waste on an unlimited basis. BFI operated the landfill until October 1975.

 BFI's permit required a five-foot, compacted clay liner and a gravity-powered leachate collection system which fed into a surface impoundment. Additionally, daily, intermediate and final earthen cover was required. *fn4" There is no evidence to show that BFI did not comply with these requirements. During its operating period, BFI admittedly placed about 375,000 cubic yards of waste into the landfill. At the end of BFI's operation, it closed and placed a final cover over the area it had landfilled.

 Beginning in October 1975, the owners leased the landfill to defendants. *fn5" Defendants operated the landfill from October 1975 to June 1988. During that time, they deposited approximately 3.5 million cubic yards of waste. MIG was the operator per the lease and AAA was a transporter to the landfill. Richard Ter Maat served as an officer of both corporations.

 After filing a site closure plan with the IEPA, which was rejected because the owners refused to sign it, defendants left the landfill without properly closing it, including no final cover. MIG lacked the funds to effectuate a proper closure. AAA was sold, and Richard Ter Maat moved to Florida. Defendants took no part in operating or closing the landfill after June 30, 1988.

 In August 1990, the United States Environmental Protection Agency (USEPA) placed the landfill on the national Priorities List (NPL) for clean-up under CERCLA. In October 1990 and again in March 1991, the USEPA and IEPA issued administrative orders on consent (AOC) to clean-up the landfill. Pursuant to these AOCs, plaintiffs were to: (1) conduct immediate waste stabilization measures, such as pump leachate from the surface impoundment, repair the impoundment berm and construct an interim cap on the landfill, (2) conduct a remedial investigation and feasibility study (RI/FS) pursuant to the NPL *fn6" ; and (3) to pay past response costs and oversight costs incurred by USEPA and IEPA.

 Plaintiffs filed this action in an effort to recover contribution for these costs, applicable interest and a declaration of liability as to future costs. *fn7" The future costs will depend on the Record of Decision (ROD) to be issued by USEPA which will set forth the needed measures to complete the clean-up and management of the landfill. *fn8"

 Following the bench trial, the parties submitted post-trial briefs in which they set forth thirty-five issues to be decided by the court. The court will decide each of the issues in this order. The facts and evidence relevant to a particular issue will be discussed when the court decides that issue.

 Operator Liability

 Plaintiffs assert liability against AAA and Richard Ter Maat as operators through theories of direct liability and derivative liability under state corporate veil-piercing law. *fn9" The court will first address the issue of direct liability.

 1. AAA

 The United States Supreme Court has recently spoken on the issue of when a party can be held directly liable as an operator under CERCLA. See United States v. Bestfoods, 118 S. Ct. 1876, 141 L. Ed. 2d 43, 1998 WL 292076 (U.S. Sup. Ct. 1998). *fn10" At issue in Bestfoods was to what extent, if any, a parent can be held liable as either an owner or an operator of a hazardous waste site owned or operated by its subsidiary. The court answered that the parent can be found derivatively liable as an owner or operator only if the corporate veil may be pierced in light of the applicable state law. Bestfoods, 1998 WL 292076, at *2-3. On the other hand, the parent can also be found directly liable as an operator, independent of any state veil-piercing law, if a plaintiff can show the parent actively participated in, and exercised control over, the operations of the site. *fn11" Id. at *3. Any person or corporation who operates a site is directly liable for the costs of clean-up regardless of whether that person is the site's owner, the owner's parent corporation or business partner, or someone who sneaks in at night to discharge toxic waste at the site. Id. at *6.

 The difficulty comes in defining actions sufficient to constitute direct operation. Bestfoods, at *6. Because the statute fails to adequately define the term "operator," the Supreme Court looked to its ordinary or natural meaning. In the organizational sense, which was the intent of CERCLA, operate means to conduct the affairs, manage, or operate a business. Id. (citing American Heritage Dictionary 1268 (3d ed. 1992)). Therefore, under CERCLA, an operator is simply someone who directs the workings of, manages, or conducts the affairs of a site. Id. To sharpen this definition for purposes of CERCLA's concern with environmental contamination, an operator must manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations. Id.

 If the issue of direct liability as an operator is to be kept distinct from derivative liability, there must be no fusion of direct and indirect liability concepts. Bestfoods, at *6. The question for direct liability is not whether the one corporation operates the other, but rather, whether it operates the site. Id. at *7. Such operation is evidenced by participation in the activities of the site and not the subsidiary. Id. Control of the operating corporation, if extensive enough, gives rise to indirect liability under state law piercing doctrine, not direct liability under the statute. Id.

 Having said that, the Court cautioned that it is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary and that fact alone may not serve to expose the parent to liability for the acts of the subsidiary. Bestfoods, at *7. This recognizes the well-established principle that directors and officers holding positions with a parent and its subsidiary can and do change hats to represent the two corporations separately despite their common ownership. Id. Therefore, it is not enough to establish direct liability as an operator that dual officers and directors made policy decisions and supervised activities at the site. Id. Rather, it must be shown that, despite the general presumption to the contrary, the officers and directors were acting in their capacities as officers and directors of the parent and not as officers and directors of the subsidiary. *fn12" Id.

 The court went on to discuss various possible scenarios where a parent corporation could be found directly liable as an operator. The first is where the parent operates the site in the stead of its subsidiary or alongside the subsidiary in some sort of joint venture. Bestfoods, at *8. The second possibility is where a dual officer or director might depart so far from the norms of parental influence exercised through dual office-holding as to serve the parent, even when ostensibly acting on behalf of the subsidiary in operating the site. Id. The third scenario is that an agent of the parent, with no hat to wear but that of the parent, might manage or direct activities at the site. Id. Norms of corporate behavior, undisturbed by any CERCLA provision, are crucial reference points. Id. The critical question is whether, in degree and detail, actions directed to the site by an agent of the parent alone are eccentric under accepted norms of parental oversight of a subsidiary's site. Id.

 In the present case, the evidence shows that Richard Ter Maat, as an officer and director of AAA and MIG, was involved in the operational decision-making at the site. The dispositive question is whether his conduct and that of AAA was done outside the norms of corporate conduct so as to be considered done on behalf of AAA rather than MIG. *fn13"

 The pertinent evidence establishes that MIG paid AAA a management fee to reimburse AAA, in part, for its performing certain administrative functions for MIG related to the site. Numerous outside parties who were involved with the site, including the IEPA and waste haulers, considered AAA to be the operator. Some venders sent correspondence and invoices to AAA for services related to site operations. Additionally, Richard Ter Maat sent several letters to the IEPA pertaining to operational matters at the site which he signed as president of AAA. He also sent a letter to the Illinois Division of Land/Noise Pollution Control pertaining to an operating permit for the site which was also signed by him as president of AAA. While defendants attempted to explain these letters away as aberrations, the letters speak for themselves. Furthermore, there are several letters from AAA's environmental consultant, M. Rapps Associates Inc., addressed to Richard Ter Maat and AAA which discuss pollution and clean-up issues at the site.

 On the other hand, as defendants point out, there is also correspondence between Rapps and MIG and the IEPA and MIG which also pertains to operations at the site. All this shows, however, at best is that AAA and MIG both were involved as operators at the site. Nothing in CERCLA, or the case law interpreting it, prohibits a finding of more than one operator liable for a site.

 The court finds that there is sufficient evidence, irrespective of the evidence related to AAA's control of MIG, to conclude that AAA was, at the very least, a joint operator of the site. As such, AAA bears direct liability under CERCLA for the clean-up costs. The court will determine AAA's share in a separate section of this order. Having found AAA directly liable as an operator under CERCLA, the court need not address the issue of whether AAA is liable indirectly under a veil-piercing theory.

 2. Richard Ter Maat

 While the Bestfoods decision offers significant guidance on the meaning of an operator for purposes of direct liability under CERCLA, the Court was careful to point out that CERCLA does not impinge on established corporate principles under state law. See Bestfoods, at *3. Prior to Bestfoods, however, the Seventh Circuit held that a corporate officer could be held directly liable as an operator under CERCLA irrespective of state veil-piercing law. Sidney S. Arst Co. v. Pipefitters Welfare Educ. Fund, 25 F.3d 417, 420-21 (7th Cir. 1994). This court respectfully believes that the Bestfoods case directly applies to, and therefore trumps, the Sidney S. Arst decision. Consequently, the only way plaintiffs can attribute individual liability as an operator to Richard Ter Maat, as an officer of both MIG and AAA, is derivatively under state veil-piercing law.

 Efforts to pierce the corporate veil are governed by the law of the state of incorporation, Stromberg Metal Works, Inc. v. Press Mechanical, Inc., 77 F.3d 928, 933 (7th Cir. 1996), which in this case is Illinois. In Illinois, a corporation's veil of limited liability may be pierced only if there is such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and if the circumstances are such that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice. Hystro Prod., Inc. v. MNP Corp., 18 F.3d 1384, 1388-89 (7th Cir. 1994). In determining whether to disregard a corporate entity, the court will consider a number of factors, including: (1) inadequate capitalization; (2) failure to issue stock; (3) failure to observe corporate formalities; (4) nonpayment of dividends; (5) insolvency of the debtor corporation at the time; (6) nonfunctioning of other officers or directors; (7) absence of corporate records; and (8) whether the corporation is a mere facade for the operation of dominant stockholders. Ted Harrison Oil Co., Inc. v. Dokka, 247 Ill. App. 3d 791, 617 N.E.2d 898, 901, 187 Ill. Dec. 441 (4th Dist. 1993). The court may also consider whether the dominant individuals commingled corporate funds with personal funds or preferred themselves as creditors. Id. When such factors are coupled with some element of injustice or fundamental unfairness, the corporation will be considered as an aggregate of persons both in equity and law and its officers, directors and shareholders will be held liable for the corporation's obligations. Id. That being said, a court should reluctantly pierce the corporate veil. Id. The party seeking to have the corporate entity disregarded must come forward with a substantial showing that the corporation is really a dummy or a sham for a dominating personality. Id.

 The present case is unique as the officers, directors and shareholders, of which Richard Ter Maat is more than one, chose to set up two corporations, one to operate the site (MIG) and another to haul garbage to the site (AAA). At first glance, one might be suspicious that two corporations were formed where one could do the job. But that is the nature of corporate law, and there are many legitimate benefits, not the least of which is related to taxes, that might motivate such an organizational move. Moreover, nothing in CERCLA purports to reject the bedrock common-law principle respecting corporate structure. Bestfoods at *5. The particular structure and functions of the corporation alone do not justify attributing liability to Richard Ter Maat individually.

 Plaintiffs contend that Richard Ter Maat is liable as the alter ego of MIG and AAA. *fn14" The court will assess this contention in light of the various factors recognized under Illinois law, keeping in mind plaintiffs' burden of a substantial showing.

 First, there is no evidence of undercapitalization. While MIG did not have tremendous resources, it was able to function financially on its own for many years. Second, stock was issued by both corporations. Third, corporate formalities were in fact observed. The evidence shows that while Richard Ter Maat was president of each corporation, decisions were made collectively. Simply because Richard Ter Maat demonstrated a leadership role does not reflect dominance. Additionally, regular meetings were held and books were kept for both corporations. Both corporations also filed corporate tax returns. Similarly, each corporation employed a controller, Phil Stevens, to maintain corporate accounting functions. Fourth, the evidence shows that the other officers and directors performed specific, identifiable functions for each corporation. While Richard Ter Maat may have been the leader, it was not a one-man show. Fifth, although plaintiffs point to some questionable corporate minutes, the overall evidence demonstrates that corporate records were maintained for both MIG and AAA. Sixth, there is no evidence sufficient to show that either corporation was a mere facade for the operation of Richard Ter Maat. These foregoing factors do not justify piercing the corporate veil.

 The remaining factors, while arguably supporting piercing the corporate veil of MIG, are insufficient to do so in light of the factors pointing the other way and plaintiffs' burden of a substantial showing. There was no evidence of any payment of dividends, although that is not entirely unusual in small corporations. As for the insolvency of MIG, it only became insolvent once the CERCLA obligations were imposed on it. Prior to that time, it maintained its own financial vitality. The fact that AAA prospered comparatively does not show MIG's insolvency. Lastly, there is some suggestion that AAA and Richard Ter Maat preferred themselves as creditors. Given the unusually low tipping rates charged AAA by MIG (irrespective of AAA's volume), the lease arrangement for heavy equipment and the management fees paid by MIG to AAA, it is evident that AAA prospered at MIG's expense. Such an arrangement is not entirely unusual as between two corporations. Ultimately, of course, Richard Ter Maat received the benefit of AAA's prosperity through the sale of AAA. Whether that was part of some grand fraudulent scheme or only last minute manipulations by a shrewd business person, the evidence simply does not answer. Hinting at or suggesting such matters is not enough in light of state corporate law. The court finds that plaintiffs have failed to prove a basis to pierce the corporate veil as to either AAA or MIG.

 Admissibility of Parnello Affidavit

 On June 24, 1988, BFI submitted, via its legal counsel, the affidavit of one of its employees, Joseph E. Parnello, to the United States Environmental Protection Agency (USEPA). The letter accompanying the Parnello affidavit states, in pertinent part, that the affidavit is submitted in response to the USEPA's contention that BFI "has a continuing obligation to supply information relevant to Belvidere Municipal Landfill No. 1." The letter further states that the Parnello affidavit "attests to the types and volumes of waste hauled from the Chrysler plant ... to the Belvidere Municipal Landfill No. 1 from 1967 to 1973." It further asserts that Parnello "started hauling Chrysler's waste in 1967 and continues to haul this waste to this day." The letter also includes a list of the types and approximate amounts of waste hauled from Chrysler for the seven-year period.

 Parnello's affidavit itself states, in relevant part, that Parnello was hauling Chrysler waste to a BFI landfill in Davis Junction, Illinois and that he had hauled Chrysler waste to the Belvidere Municipal Landfill No. 1 from 1967 to 1973. Parnello also states that "all of the waste [he] hauled from Chrysler was taken to the Belvidere Municipal Landfill No. 1 until the landfill closed in 1973." The Parnello affidavit further states that during the seven-year period he hauled: approximately 15,000 gallons of infilco sludge every two months, approximately three to five 20 cubic yard loads per week of paint sludge, approximately three to five loads of fly ash per week depending on the season, approximately two to five 30 yard loads of metal debris and scrap per week and approximately two 15 yard loads per day of industrial wastewater sludge. According to Parnello, Chrysler also disposed of about sixty drums of waste per week, with some of the drums containing solvents, tar or metal scraps.

 Defendants seek to admit the Parnello affidavit as circumstantial evidence of what type and volume of Chrysler waste was hauled by Parnello during the period of 1973 to 1975. Plaintiffs contend the affidavit is inadmissible hearsay.

 Federal Rule of Evidence 801(d)(2) governs the admissibility of the Parnello affidavit. Rule 801(d)(2) provides that an admission by a party opponent is not hearsay, and therefore admissible, if it "is offered against a party and is (A) the party's own statement, in either an individual or a representative capacity or (B) a statement of which the party has manifested an adoption or belief in its truth, or (C) a statement by a person authorized by the party to make a statement concerning the subject, or (D) a statement by the party's agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship ...." Parnello's affidavit, while arguably admissible under subsection (A), qualifies as an admission by BFI under subsection (B), (C) and (D). The cover letter by BFI's attorney reflects that BFI had adopted a belief in its truth as it was submitted to the USEPA and also that BFI authorized Parnello to make the statement. Additionally, as to subsection (D), Parnello was an employee of BFI at the time he made the affidavit and it concerned a matter within Parnello's employment. Accordingly, the court admits the Parnello affidavit as an admission by BFI.

 Chrysler Waste

 The parties have presented the twin issues of whether an adverse inference can be drawn based on Chrysler's alleged failure to produce all documents relevant to disposal of its wastes for the period 1973 to 1975 and whether such an inference can be attributed to BFI for its similar failure. A related issue is whether section 103(d) of CERCLA, 42 U.S.C. § 9603(d), required BFI to retain all records of its operation at the site. The court finds it unnecessary to decide these issues as there is sufficient evidence to infer that Chrysler waste did in fact go to the site during the period 1973 to 1975.

 The undisputed evidence shows that Parnello, a BFI employee, exclusively hauled the Chrysler waste from at least 1967 to 1973. Additionally, the undisputed evidence demonstrates he exclusively hauled Chrysler waste after 1975. Other evidence strongly suggests that he also hauled the Chrysler waste from 1973 to 1975.

 The big mystery, of course, is where did he haul it during the 1973-75 period. In that regard, the evidence shows that from 1967 to 1973 Parnello hauled all of the Chrysler waste to BFI's site at Belvidere Municipal Landfill No. 1 and that from 1975 forward he hauled it to BFI's new site at Davis Junction. *fn15" David Boque, a management level employee of Chrysler, testified by deposition that he was aware of Parnello hauling Chrysler waste to Belvidere Municipal Landfill No. 1 before 1973 and to Davis Junction from sometime in 1975 thereafter. Curiously, Boque had no knowledge of where Parnello hauled Chrysler waste from 1973 to 1975. Furthermore, BFI applied for a permit in early 1973 from Illinois Environmental Protection Agency to deposit liquid wastes from Chrysler in the site.

 Additionally, an employee of BFI at the site, Kenneth Bodey, testified at trial that while he worked there Parnello hauled Chrysler waste to the site. According to Bodey, once or twice a week Parnello would bring in a twenty-yard container containing two different sludges. One sludge Bodey described as purple in color with a stiff consistency which he referred to as number five sludge and described as paint sludge. The second sludge, referred to as number seven sludge, was gray in color with a soft, but not liquid, consistency. Bodey described this as sewage sludge. Neither sludge smelled like solvents. Bodey also testified he saw Parnello bring infilco waste into the site in a twenty-yard box. According to Bodey, he also saw fly ash and cinders hauled into the site by Parnello, at a rate in the winter of two to three loads per day. To Bodey's knowledge, BFI's trucks went only to the site and no other landfill while BFI operated the site. While Bodey saw Parnello haul drums into Belvidere Municipal Landfill No. 1, he never saw him haul drums to the site.

 Cleatos Atkinson, the former general manager of BFI, testified, and the documentary evidence shows, that in mid-1975 BFI sought and received significant hauling and disposal rate charges for liquid waste in the agreement covering 1973 to 1976. This was at about the same time BFI began hauling Chrysler waste to Pagel Pit and then Davis Junction.

 When the court views this evidence in its entirety, the inescapable conclusion is that BFI hauled Chrysler waste, including sludges and infilco waste, to the site during the period of 1973 to 1975. The more difficult questions are how much was deposited and to what extent did these wastes contain solvents.

 In that regard, the court finds persuasive the expert opinion of defendants' witness, Paul R. Ammann. According to Ammann, BFI contributed approximately 3,430,000 pounds of solvents to the site between April 1973 and June 1975. *fn16" This amount is based on the number of vehicles manufactured by Chrysler during this time period and the approximate amount of solvent-bearing waste generated therefrom. According to Ammann, the 3.4 million pounds of solvents deposited by BFI at the site represents about 91 percent of the total solvent content at the site. *fn17" The question of the impact of solvents at the site will be addressed when the court decides the allocation issues.

 Appropriateness of Damages Under the NCP

 Defendants contend that plaintiffs have failed to carry their burden of proving that the response costs they seek to recover were both necessary and consistent with the National Contingency Plan. Peppers counsel for defendants *fn18" further ...


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